Are you wondering what your 2025 Social Security monthly benefit will be? All Social Security beneficiaries receive the same COLA percentage increase at the start of the year, but recipients in states with lower monthly SS benefits will see the lowest increases in their checks compared to other states. How can this be if everyone receives the same raise? There isn't one answer that explains why, so let's dig in.
Social Security benefits are based on lifetime income and the age you claim your benefits. Ultimately, how much you get depends on the Social Security benefits formula. If you want to ensure you receive the biggest benefit possible, consider waiting to claim your Social Security benefits. You will receive an extra 2/3 of 1% for each month you delay after your birthday month, adding up to 8% for each full year you wait until age 70. If you defer claiming benefits until age 70, you'd receive 132% of your full retirement benefit.
What is the Social Security benefits formula?
Social Security benefits are computed using average indexed monthly earnings (AIME)." This is your average monthly earnings over your 35 highest-earning years, adjusted for inflation. Social Security uses the Average Wage Index (AWI) to adjust your wages for inflation, ensuring that only those years where you earn the most are used to calculate your benefit. The Social Security Administration (SSA) applies a formula to this average to compute the primary insurance amount (PIA). The PIA number is the basis for the benefits that are paid to an individual.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
That is where we will stop before this turns into a math lesson instead of an explanation of why retirees in some states will see the lowest COLA increases. If you are interested in learning how to estimate your Social Security benefits, use these six steps to understand how your benefits are determined and how much you'll receive.
The important takeaway here is that your earnings play a huge role in determining what your Social Security monthly benefits will be when you retire.
Why retirees in some states receive lower monthly benefits and smaller COLA increases
The SSA publishes the Annual Statistical Supplement to the Social Security Bulletin that includes extensive data about the program, payment amounts, and demographics of recipients. The data used here are from the 2023 bulletin, showing the distribution of retired-worker beneficiaries by monthly benefit by state as of December 2022. The 2022 figures are the most-recent final annual data available. While these data don't reflect either the 2023 or 2024 COLA increases, they are useful in illustrating how benefit amounts impact COLA increases overall.
Retired workers in the 10 states below would receive the smallest cost-of-living adjustments (COLAs) in terms of dollars. That is the case because they receive the smallest median Social Security benefits, and a COLA increase is based on the individual recipient’s monthly benefit. All retirees will see the same percentage change in their checks in 2025 — an increase of 2.5%. However, the average beneficiary in some states will receive less than in others. For example, the average beneficiary in Mississippi will see an annual bump on a dollar basis of $483 (or $40.25 monthly), which is $122 less than the average beneficiary in New Jersey, who will see an annual increase of $605 (or $50.40 monthly).
Where a retired worker chooses to live has no direct impact on their Social Security benefit, but it does impact employment opportunities, and pay scale which are factors that will impact your lifetime earnings and the size of your Social Security check.
The median annual salary for all Americans is $60,580 or $1,165 a month, according to the Bureau of Labor Statistics (BLS) Usual Weekly Earnings Of Wage And Salary Workers Q3.
| States | Average annual salary | Average hourly wage |
|---|---|---|
| Lowest | Row 0 - Cell 1 | Row 0 - Cell 2 |
| Mississippi | $45,180 | $21.72 |
| Arkansas | $48,570 | $23.35 |
| West Virginia | $49,170 | $23.64 |
| Highest | Row 4 - Cell 1 | Row 4 - Cell 2 |
| Massachusetts | $76,600 | $36.83 |
| New York | $74,870 | $36.00 |
| California | $73,220 | $35.20 |
While Mississippi, Arkansas and West Virginia have the lowest average annual salaries in the US., Massachusetts, New York and California have the highest average salaries, according to Forbes. The difference between the annual salaries in West Virginia and Massachusetts is $31,420. That means folks in West Virginia, on average, earn almost 40% less than their counterparts in Massachusetts.
To determine your benefit, the SSA calculates your average indexed monthly earnings during the 35 years in which you earned the most. This results in beneficiaries with lower lifetime earning receiving smaller lifetime benefits and annual COLA increases.
| State | Median benefit | Monthly COLA 2.5% increase | Annual COLA 2.5% increase | Median monthly benefit with 2.5% COLA |
|---|---|---|---|---|
| 10 states with smallest monthly benefits | Row 0 - Cell 1 | Row 0 - Cell 2 | Row 0 - Cell 3 | Row 0 - Cell 4 |
| Mississippi | $1,610.90 | $40.27 | $483 | $1,651.17 |
| Louisiana | $1,611.40 | $40.28 | $483 | $1651.69 |
| District of Columbia | $1,613.00 | $40.33 | $484 | $1,653.33 |
| New Mexico | $1,629.90 | $40.75 | $489 | $1670.65 |
| Arkansas | $1,651.90 | $41.30 | $495 | $1,693.20 |
| Alaska | $1,659.90 | $41.50 | $498 | $1,701.49 |
| Maine | $1,665.90 | $41.65 | $500 | $1,707,55 |
| Montana | $1,680.00 | $42.05 | $504 | $1,722 |
| Kentucky | $1,681.90 | $42.05 | $505 | $1,724.95 |
| South Dakota | $1,706.00 | $42.65 | $512 | $1,748.65 |
| Row 11 - Cell 0 | Row 11 - Cell 1 | Row 11 - Cell 2 | Row 11 - Cell 3 | Row 11 - Cell 4 |
| 5 states with largest monthly benefits | Median benefit | Monthly COLA 2.5% increase | Annual COLA 2.5% increase | Median monthly benefit with 2.5% COLA |
| New Jersey | $2,015.90 | $50.40 | $605 | $2,066.30 |
| Connecticut | $1,996.00 | $49.92 | $599 | $2,045.92 |
| Delaware | 1,978.90 | $49.47 | $594 | $2,028.37 |
| New Hampshire | $1,945.90 | $48.65 | $584 | $1,994.55 |
| Michigan | $1,931.00 | $48.27 | $579 | $1979.27 |
The data used in the table is from Annual Statistical Supplement, 2023, Table 5.J6.
Related Content
-
Cord Cutting Could Help You Save Over $10,000 in 10 YearsHow cutting the cord can save you money and how those savings can grow over time.
-
The '8-Year Rule of Social Security' — A Retirement RuleThe '8-Year Rule of Social Security' holds that it's best to be like Ike — Eisenhower, that is. The five-star General knew a thing or two about good timing.
-
Cord Cutting Could Help You Save Over $10,000 in 10 Years
How cutting the cord can save you money and how those savings can grow over time.
-
The '8-Year Rule of Social Security' — A Retirement Rule
The '8-Year Rule of Social Security' holds that it's best to be like Ike — Eisenhower, that is. The five-star General knew a thing or two about good timing.
-
Tips for Expat Retirees, From Expat RetireesYou may enjoy a lower cost of living by moving abroad, but it requires careful planning.
-
You Were Planning to Retire This Year: Should You Go Ahead?If the economic climate is making you doubt whether you should retire this year, these three questions will help you make up your mind.
-
Are You Owed Money Thanks to the SSFA? You Might Need to Do Something to Get ItThe Social Security Fairness Act removed restrictions on benefits for people with government pensions. If you're one of them, don't leave money on the table. Here's how you can be proactive in claiming what you're due.
-
From Wills to Wishes: An Expert Guide to Your Estate Planning PlaybookConsider supplementing your traditional legal documents with this essential road map to guide your loved ones through the emotional and logistical details that will follow your loss.
-
The Top Fourth of July Fireworks and Celebrations Across AmericaFrom Boston to San Diego, these iconic celebrations light up the sky — and the spirit of Independence Day.
-
Why Retirees Need a Budget, According to a New RetireeA new retiree explains why retirees need a budget.
